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In March 2003, the Department of State (State) awarded a sole-source contract to EmbSEC, a Virginia limited liability corporation, for work at U.S. embassies. The contract currently has a ceiling price of $354 million. The contractor is required to install and maintain technical security equipment, such as alarms, cameras, and controlled-access equipment; establish X-ray capability for special projects; and maintain and repair physical security products. The contractor also procures equipment and materials and operates the warehouse where they are stored. EmbSEC was created as a joint venture, mentor/protege partnership under the Small Business Administration's (SBA) 8(a) business development program. A joint venture in the 8(a) program is an agreement between an 8(a) participant and one or more businesses to work together on a specific 8(a) contract. SBA regulations state that the purpose of the mentor/protege relationship is to enhance the capabilities of the protege and to improve its ability to successfully compete for contracts. The EmbSEC joint venture is comprised of RDR, Inc., the mentor, and BP International (BPI), the protege, an 8(a) firm at the time the contract was awarded. State had awarded 8(a) contracts to RDR for the same type of work in 1992 and 1998. We received a tip on our fraud hotline regarding the EmbSEC contract. The objectives of our review, conducted under the authority of the Comptroller General to conduct evaluations on his own initiative, were to determine (1) State's basis for awarding the contract to EmbSEC without competition and (2) the extent to which SBA has monitored the roles and responsibilities of the companies under the joint venture arrangement. We are sending a separate management letter to State regarding this contract.

State relied on a waiver of 8(a) competitive thresholds, granted by SBA in 2001, to award the sole-source contract to EmbSEC. However, the waiver was improper because SBA was not authorized to grant it. SBA can authorize sole-source 8(a) awards above the competitive thresholds (1) for specific procurements and (2) if it determines that other 8(a) firms cannot compete for the requirement. In this case, SBA authorized State to make sole-source 8(a) awards in any amount for contracts that "supplement the security of U.S. Government diplomatic posts and protect the lives of Departmental personnel." The waiver was not tied to a specific procurement, but was a blanket waiver that could be applied to any contract pertaining to security at diplomatic posts. The waiver was signed by another official on behalf of SBA's Associate Administrator for 8(a) Business Development; SBA headquarters officials were unaware of the waiver until we brought it to their attention. They agreed that it was unauthorized. State incorporated the waiver in its procurement regulation in April 2004, but officials from State's offices of procurement policy and Small Business Utilization told us it has been used only for the EmbSEC contract. It is not clear why State used the waiver to award the 2003 contract to EmbSEC rather than using competitive procedures. Five years earlier, in 1998, when RDR was awarded the prior contract as the only 8(a) offerer, the contracting officer expressed concern with the lack of competition, noting that "it would be in the best interest of the government to re-compete this requirement at the earliest practical time." State officials told us that a number of companies could perform this work. Although SBA officials approved the EmbSEC joint venture and mentor/protege agreement, they have not monitored the roles and responsibilities of the two contractors, despite the fact that this is an unusually large and complex 8(a) contract. According to contractor representatives, as well as State officials, RDR sought out BPI as an 8(a) joint venture partner for the contract. At the time, BPI was a very small firm specializing in information technology project management and consulting. Under the EmbSEC contract, RDR and DynCorp, a subcontractor, install and maintain security systems at embassies, and BPI provides administrative services, such as operating the warehouse for the equipment. SBA headquarters officials--the Associate Administrator for the 8(a) Business Development program and a representative from the office of General Counsel--said that this arrangement does not appear to be providing BPI, as the protege, with the experience that would be expected. Officials in SBA's Washington, D.C., district office had not followed up to ensure that the 8(a) firm was receiving the appropriate benefits from the arrangement.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: On May 9, 2007, the SBA administrator sent a letter to GAO stating that, pursuant to our recommendation, SBA has retracted State's waiver. The letter retracting the waiver was attached.

Recommendation: The Administrator of SBA should retract the September 2001 waiver of 8(a) competitive thresholds granted to the Department of State.

Agency Affected: Small Business Administration

Status: Closed - Implemented

Comments: On May 9, 2007, the administrator of SBA sent GAO a letter stating that SBA's Washington Metropolitan Area District Office had conducted an assessment and determined that the intent of the mentor/protege program and resultant joint venture agreement had not been met. However, the mentor/protege relationship and joint venture agreement ended with the expiration of the EmbSec contract on March 11, 2007.

Recommendation: The Administrator of SBA should direct the Washington district office to review the roles and responsibilities of BPI versus those of RDR under the EmbSEC 8(a) joint venture to determine whether the joint venture is meeting the intent of the SBA program.